Crossing Off the Red Cross

Barry Ritholtz is a Bloomberg View columnist. He founded Ritholtz Wealth Management and was chief executive and director of equity research at FusionIQ, a quantitative research firm. He blogs at the Big Picture and is the author of “Bailout Nation: How Greed and Easy Money Corrupted Wall Street and Shook the World Economy.”Read More.

The American Red Cross has become a man-made disaster. It wasted millions of dollars in Hurricane Sandy aid through mismanagement and poor judgment. It compounded the problem by covering up its errors, hiring lawyers to prevent the public from finding out what happened to its donations.

Earlier this year, I expressed my disappointment in the Red Cross. It had raised $312 million for storm relief, but then stonewalled on how the money was spent.

This morning, we found out why. Thanks to the dogged investigation by Justin Elliott and Jesse Eisinger of ProPublica and Laura Sullivan of NPR, we learned how poorly the Red Cross responded to the Sandy disaster. Their article "The Red Cross’ Secret Disaster" is must reading for anyone who contributes to philanthropies.

The details are shocking. The Red Cross wasted millions of donated dollars through mismanagement, bad judgment and poor priorities, including a show of the appearance of providing assistance, at the expense of delivering the aid itself.

Anyone involved in emergency assistance or other charitable work should read the report. It is a primer on what not to do when providing emergency relief after a natural disaster.

The details of how it botched the relief efforts are laid out in Red Cross documentsand are simply stunning:

• Despite plenty of advance warning of Sandy, the Red Cross lacked basics such as food, blankets and batteries to distribute to victims after the storm.

• Red Cross workers weren't provided with the usual GPS devices. Many got lost driving around the New York area and were unable to deliver aid and supplies.

• As many as half of the emergency meals prepared for Sandy victims were wasted or never delivered.

• The Red Cross failed to deliver food, water, shelter, cleaning supplies, blankets to survivors of Sandy until weeks after the storm. Mormon and Amish volunteers, on the other hand, were delivering supplies just three days after the storm.

• Red Cross supervisors ordered dozens of empty trucks to be driven around, “just to be seen,” in lieu of delivering relief supplies.

• Emergency response vehicles and other assets were also diverted from disaster aid to be seen as backdrops at news conferences for PR purposes; the Red Cross did this after other storms too, including Hurricane Isaac.

Perhaps most damning is evidence that the Red Cross fabricated claims of how many people were actually served by the charity. The Red Cross said that “17 million meals and snacks were delivered, there were 74,000 overnight stays in shelters, more than 7 million relief items like blankets and flashlights.” Internal documents cast doubt on those numbers, saying the charity’s ability to actually count what was delivered was “crippled.”

Now we know why the Red Cross hired the law firm Gibson Dunn to fight public disclosures of how Sandy money was spent. Gibson Dunn distinguished itself by making the absurd claim that Sandy activities were a “trade secret.” Eventually, the Red Cross backed away from that stance.

Regardless, there was lots of flailing to hide the mismanagement that took place after Sandy.

In June, I wrote, “Until it opens its books on Sandy, it's off my list of charities.”

The Red Cross takes in more than $1 billion a year in donations, but seems to have lost the ability to manage that money.

In light of the ProPublica and NPR investigation, I am crossing the Red Cross off my list of charities until the senior management is fired and a full audit is done of its accounting. Based on the investigation, it appears to be a terribly mismanaged charity.

Until that changes, it is unworthy of your money.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

Barry Ritholtz is a Bloomberg View columnist. He founded Ritholtz Wealth Management and was chief executive and director of equity research at FusionIQ, a quantitative research firm. He blogs at the Big Picture and is the author of “Bailout Nation: How Greed and Easy Money Corrupted Wall Street and Shook the World Economy.”Read more